How can startups create a moat or lock-in for their product?


3

Large companies do it with lengthy contracts or brand recognition. What strategies can startups use to lock users in. Not in terms of a shady practice like not letting them export data, but in terms of building competitive advantage.

No industry has a lower barrier to entry than tech. So a new competitor can fairly easily build a similar product quickly. What strategies can you employ to ensure customers don't jump ship for a lower price?

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asked Apr 27 '14 at 13:29
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John Boucher
16 points

2 Answers


4

There are five big tactics I see most tech companies are using:

1. Quality - No one has a better quality / amount of inputs to their search algorithm (and thus, a better algorithm) than Google. Web search is a commodity technology at this point, but Google maintains lock-in by having better results than anyone else. Eventbrite does a lot of event-registration things really well. There are some competitors out there with nifty unique features, but I can't switch until they do all the things Eventbrite does at least as well.

2. Network effects / social lock-in - The only reason I'm still on Facebook is because my friends are still there. Same with Twitter vs. App.net. I use Craigslist to find roommates because that's where people are searching for rooms. World of Warcraft keeps users for much longer than a normal game because guilds as a game mechanic mean you're making social connections and becoming part of a group whose members are reliant on one another. Meetup is still a dominant platform because of network effects.

3. Partnerships & integration - Klout persists not because of brand recognition alone, but because it's gotten built in as the measure of influence all other social media tools use. Klout's partnership with HootSuite is much more of a barrier to competitors like PeerIndex & Kred than anything else. FourSquare is hanging on through the trough of disillusionment because of how many services use its location database and streaming check-in data. Dropbox competes against internet heavyweights because of its partnerships.

4. User reputation / progress - Different from pure data lock-in, some data only has meaning within the context of the original application it's from. My achievements / progress in one game wouldn't have meaning imported into another. A user with a high StackExchange / reddit / Hacker News score is more likely to want to keep growing that score on that platform than start from scratch on a competitor's (especially if user privileges are associated with it).

5. Brand - Startups can't use their brand for user acquisition as effectively as large companies can, but for user retention, they absolutely can and should. For user retention purposes, your brand is simply how much I like / trust your company. MailChimp has plenty of competitors -- many of them cheaper. But I like MailChimp. Flight search has a lot of players with little differentiation -- but I like Hipmunk, so they're the ones I always use. There are a ton of toolsuites for SEO. But I trust Moz as a company. Branding is essential for companies that want to compete on value, not on cost.

answered Apr 28 '14 at 15:44
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Jay Neely
6,050 points
  • Good list, but missing great customer service. Brand loyalty is actually hard to build and sustain as many consumers are either price sensitive or feature-focused in many markets. P.S. I like Moz brand, but actually prefer and use other SEO tools. – Webbie 3 years ago
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2

Simple: Give your client a great product, which is easy to use at a price they're willing to pay (and is sustainable to your business) and deliver great customer service - they'll fall in love, and won't need to look anywhere else.

answered Apr 28 '14 at 10:48
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Nick Stevens
4,436 points
  • 100% agree about customer service - it's where small and mid-size businesses can and should do better than large companies - this can grow loyalty large companies simply rarely inspire. – Webbie 3 years ago
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